annual report of 2017 · 2018. 3. 22. · we have reinvested in mgm macau with six retail store...

AnnuAl RepoRt oF 2017

Corporate Information 2

Financial Highlights 3

Chairperson’s Statement 4

Directors and Senior Management 10

Management Discussion and Analysis 20

Sustainability 46

Corporate Governance Report 82

Report of the Directors 101

Consolidated Financial Statements

Independent Auditor’s Report 137

Consolidated Statement of Profit or Loss and

Other Comprehensive Income 144

Consolidated Statement of Financial Position 145

Consolidated Statement of Changes in Equity 147

Consolidated Statement of Cash Flows 148

Notes to the Consolidated Financial Statements 150

Financial Summary 233

Glossary 234

Contents

1

Corporate InformatIon

2


Board oF direCtorS

exeCutive direCtorS

James Joseph Murren (Chairperson)Pansy Catilina Chiu King Ho (Co-Chairperson)Chen Yau WongWilliam Joseph HornbuckleGrant R. Bowie (Chief Executive Officer)

NoN-exeCutive direCtorS

William M. Scott IVDaniel J. D’ArrigoKenneth A. Rosevear (resigned on 14 February 2018)

iNdepeNdeNt NoN-exeCutive direCtorS

Zhe SunSze Wan Patricia LamPeter Man Kong WongRussell Francis Banham

audit CommitteeRussell Francis Banham (Chairperson)Daniel J. D’ArrigoZhe SunPeter Man Kong Wong

remuNeratioN CommitteeZhe Sun (Chairperson)Pansy Catilina Chiu King HoWilliam Joseph HornbuckleSze Wan Patricia LamPeter Man Kong WongRussell Francis Banham

NomiNatioN aNd Corporate GoverNaNCe CommitteeSze Wan Patricia Lam (Chairperson)William M. Scott IVChen Yau WongZhe SunPeter Man Kong WongRussell Francis Banham

CompaNy SeCretaryAntonio Jose Menano

authorized repreSeNtativeSAntonio Jose MenanoWilliam M. Scott IV

auditorDeloitte Touche TohmatsuCertified Public Accountants

LeGaL adviSorS

As to Hong Kong law:Herbert Smith Freehills23rd Floor, Gloucester Tower, 15 Queen’s Road CentralHong Kong

As to Macau law:DSL LawyersAvenida da Praia Grande no. 409China Law Building 16th FloorMacau

reGiStered oFFiCe iN CaymaN iSLaNdS

190 Elgin AvenueGeorge TownGrand Cayman KY1-9005Cayman Islands

priNCipaL pLaCe oF BuSiNeSS aNd head oFFiCe iN maCau

Avenida Dr. Sun Yat Sen, Edifício MGM MACAUNAPE, Macau

pLaCe oF BuSiNeSS iN hoNG KoNG reGiStered uNder part 16 oF the CompaNieS ordiNaNCe

1402 China Merchants Tower200 Connaught RoadCentral, Hong Kong

hoNG KoNG LiSted Share reGiStrar

Computershare Hong Kong Investor Services LimitedShops 1712-1716, 17th FloorHopewell Centre183 Queen’s Road EastWanchai, Hong Kong

CaymaN iSLaNdS uNLiSted Share reGiStrar aNd traNSFer oFFiCe

Intertrust Corporate Services (Cayman) Limited190 Elgin AvenueGeorge Town, Grand Cayman KY1-9005Cayman Islands

CompaNy WeBSite

www.mgmchinaholdings.com

StoCK Code

2282

3


fInanCIal HIgHlIgHts

For the year ended

december 31

2017 2016

hK$’000 HK$’000

Casino revenue 15,053,622 14,606,066

Other revenue 302,384 301,402

Total revenue 15,356,006 14,907,468

Adjusted EBITDA (unaudited) 4,587,435 4,491,838

Operating profit 2,624,201 3,099,117

Profit for the year attributable to owners of the Company 2,320,185 3,036,508

Earnings per Share

— Basic hK61.1 cents HK79.9 cents

— Diluted hK60.9 cents HK79.9 cents


Looking forward to 2018, this is a new chapter for our Company as we open MGM

CotAI, our second integrated resort in Macau and more than double our footprint

in the market. MGM CotAI will soon be recognized as one of the most innovative

integrated resorts not only in Macau, but also in the world, delivering on our

promise to Macau and China to support the development of Macau as a global tourism

destination.

CHaIrperson’sstatement

5

CHaIrperson’s statement

6


JAMes Joseph Murren

Chairperson

7


At MGM China our operations at MGM MACAU

were encouraging as mass gaming revenue growth

accelerated in the fourth quarter by approximately

23% sequentially and approximately 22% year-over-

year, despite tougher comps. We believe the market’s

increase in hotel supply, longer length of stay and the

recovery of high-end demand collectively contributed

to the mass segment improvement we experienced

this year.

Our team is continuously focused on profitability,

managing our cost base, gaming floor and room

yields. Our operations at MGM MACAU experienced

revenue growth of 3% and adjusted EBITDA growth

of 2% year-over-year. Margin remained steady and

healthy at 30%.

Dear Shareholders,

2017 was a year of growth in Macau with gross

gaming revenue in the Macau market increasing

19% year-over-year to HK$258.0 billion. The market

continued to ramp as the year went on despite

increasingly more difficult comparisons in the second

half of the year thanks to the recovery of high-end

demand and an improving macro environment.

VIP gaming revenues in the Macau market grew

approximately 25% in 2017 and mass gaming growth

was also solid, improving by approximately 14%

year-over-year. This improving market provided a

favorable position for the operations of MGM MACAU

and the launch of MGM COTAI in February 13, 2018.

CHaIrperson’s statement

8


We have reinvested in MGM MACAU with six retail

store additions in 2017, the redesign and launch

of Square Eight to Square Eight North and South

focusing on the specific cuisines of Northern and

Southern China as well as bringing two new Art

Exhibitions to the Art Space at MGM MACAU: “A

Golden Way of Life – Très’Ors” and “Learn and

Play! teamLab Future Park,” supporting our goal of

investing diversification and in driving incremental

visitors to our resort.

In 2017, we celebrated 10 years of operations in

Macau and thanked the 1,900 employees who have

been with us since the beginning, for a decade of

commitment and loyalty. Without the dedication of

our employees, we would not be able to achieve

all of our successes. Our brand promise is to make

great moments happen for all our stakeholders. With

respect to our employees, we honor this promise

through providing a great place to work, develop and

reach one’s full potential.

9


The future of the Macau market continues to be

bright. Major infrastructure upgrades are underway

and other supportive policies are expected to

support the expansion of the mass market. The Hong

Kong-Zhuhai-Macau Bridge is particularly promising.

The 55km bridge connects Hong Kong to Macau and

Zhuhai in Mainland China and will significantly reduce

travel times in the region and improve accessibility

when it opens in the back half of 2018.

Looking forward to 2018, this is a new chapter for

our Company as we open MGM COTAI, our second

integrated resort in Macau and more than double

our footprint in the market. MGM COTAI will soon be

recognized as one of the most innovative integrated

resorts not only in Macau, but also in the world,

delivering on our promise to Macau and China to

support the development of Macau as a global

tourism destination.

We look forward to a spectacular 2018 with MGM

China.

Jim murren

Chairperson

DIreCtors anD senIor management

10


1. pansy ho

2. Jim murren

3. Grant r. Bowie

4. russell Banham

5. Cy Wong

6. patti Lam

7. Bill hornbuckle

8. zhe Sun

9. Ken rosevear

10. peter Wong

11. William Scott

12. dan d’arrigo

1

2

34

56

1110

97 8

12

11


memBerS oF our Board

executive directors

James Joseph murren, aged 56, is the Chairperson and an Executive Director of the Company. Mr. Murren

is the Chairman and Chief Executive Officer of MGM Resorts International. He has served as a director of

MGM Grand Paradise since January 19, 2010. Since April 22, 2016, Mr. Murren also serves as Chairman of the

Board of MGM Growth Properties LLC, a real estate investment fund listed in the New York Stock Exchange

that is engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure

resorts, whose diverse amenities include casino gaming, hotel, convention, dining, entertainment and retail

offerings. In 1998, Mr. Murren joined MGM Grand Inc. (a predecessor of MGM Resorts International) as Chief

Financial Officer and a member of the board. He completed significant acquisitions over the next seven

years, overseeing the transformation of MGM Resorts International into one of the world’s leading gaming

companies. In 1999, the board promoted Mr. Murren to President and then to Chief Operating Officer in 2007.

As Chief Financial Officer, Mr. Murren directed the implementation of an extensive reorganization of MGM

Grand Inc. and started the development of CityCenter. Before he joined MGM Grand Inc., Mr. Murren served

as a Managing Director of U.S. Equity Research at Deutsche Bank AG. Mr. Murren graduated with a Bachelor’s

degree in art history and urban studies from Trinity College, Hartford in 1983. Prior to joining the board of MGM

Grand Paradise, Mr. Murren was involved in the design, development, financing, management and operations

of MGM Grand Paradise.

pansy Catilina Chiu King ho, JP, aged 55, is the Co-Chairperson, an Executive Director and a member of the

Remuneration Committee of the Company. Ms. Ho is the Managing Director of Shun Tak Holdings Limited, a

leading business conglomerate listed on the Hong Kong Stock Exchange, a position she has held since 1999.

In June 2017, she was appointed as Group Executive Chairman of Shun Tak Holdings Limited. She has served

as a director of MGM Grand Paradise since June 1, 2005. Ms. Ho is also a director of a number of privately held

companies, including Grand Paradise Macau Limited, Grand Paradise Grupo S.A., New Corporate Enterprises

Limited, Bright Elite Holdings Limited and Grand Paradise Group (HK) Limited. In addition, Ms. Ho is the Vice

Chairman and an Executive Director of the board of directors of Macau International Airport Company Limited

and an independent non-executive director of Sing Tao News Corporation Limited which is listed on the Hong

Kong Stock Exchange. She is also a Chairperson of Hong Kong Federation of Women. In China, she is also a

Standing Committee Member of the Beijing Municipal Committee of the Chinese People’s Political Consultative

Conference, a Standing Committee Member of the All-China Federation of Industry and Commerce, and a Vice

President of its Women’s Chamber and Chamber of Tourism. In Macau, Ms. Ho is a member of the Government

of Macau SAR Tourism Development Committee, Committee Member of the Committee for Cultural Industries

and Committee for Women and Children Affairs, the Chairperson of Global Tourism Economy Research Centre,

the Vice Chairperson and Secretary-General of Global Tourism Economy Forum, a Vice President of the Macau

Chamber of Commerce and a Vice Chairperson of Macau Convention & Exhibition Association. Internationally,

she is also an Executive Committee Member of the World Travel & Tourism Council and a member of Sotheby’s

International Council. Ms. Ho was appointed as Honorary Professor of School of Political Communication,

Central China Normal University in November 2013, she was appointed as Honorary Fellowship from the

Hong Kong Academy for Performing Arts and University of Hong Kong in June 2014 and September 2015

respectively, and appointed as Justices of Peace in July 2015. Ms. Ho graduated with a Bachelor’s degree in

marketing and international business management from the University of Santa Clara in the United States.


12


Chen yau Wong, aged 64, is an Executive Director and a member of the Nomination and Corporate

Governance Committee of the Company. Mr. Wong is a director of MGM Grand Paradise, a position he has held

since September 2007. Mr. Wong was a director of Grand Paradise Group (HK) Limited from December 2014

and retired in June 2016 and Grand Paradise Grupo S.A. from January 2005 and retired in June 2016. Prior to

that, Mr. Wong was appointed by Shun Tak Holdings Limited as a financial advisor and operations controller

between 2000 and 2007. Mr. Wong qualified as a chartered accountant in England and Wales in 1980 and

graduated with a Bachelor’s degree in mechanical engineering science from the University of Salford in the

United Kingdom.

William Joseph hornbuckle, aged 60, is an Executive Director and a member of the Remuneration Committee

of the Company. He also serves as a director of MGM Grand Paradise with operations and resorts in Macau

since November 16, 2009. A 39-year veteran of the gaming industry, Mr. Hornbuckle currently serves as

President of MGM Resorts International. Mr. Hornbuckle also serves as Director of MGM Growth Properties

LLC. In this capacity, one of his main roles is to serve as the Company’s Chief Construction Design and

Development Officer. He is also in charge of the global expansion efforts of the Company through its

gaming development and MGM Hospitality divisions. In addition, Mr. Hornbuckle oversees the Company’s

Entertainment team in creating a synergistic approach for the Company’s entertainment programing. He also

serves as a key operational liaison to the Chief Executive Officer and Chief Operating Officer on all matters of

operational significance. Mr. Hornbuckle was previously Chief Marketing Officer of MGM Resorts International

from 2009 until 2012. From April 2005 until August 2009, Mr. Hornbuckle served as President and Chief

Operating Officer of Mandalay Bay Resort & Casino in Las Vegas. He also served as President and Chief

Operating Officer of MGM Grand Las Vegas from 1998 to 2001. Prior to MGM Grand Las Vegas, Mr. Hornbuckle

served as President and Chief Operating Officer for Caesars Palace, Las Vegas. Mr. Hornbuckle is a graduate

of the University of Nevada, Las Vegas and has a Bachelor of Science degree in Hotel Administration. He

serves on the Board of Advisors of the Andre Agassi Foundation, the Board of Trustees for Three Square Food

Bank and is a Founder of the Bank of George. Previously, Mr. Hornbuckle served on the boards for the United

Way of Southern Nevada and the University of Nevada, Las Vegas Foundation. From 1999 to 2003, he also

served as a Board Member of the Las Vegas Convention and Visitors Authority.

13


Grant r. Bowie, aged 60, is the Chief Executive Officer and an Executive Director of the Company. Mr. Bowie

is responsible for the overall management, strategic development and expansion of the Company including

the direction and operations of MGM MACAU and MGM COTAI, the latest addition to the MGM portfolio in

China. Mr. Bowie joined MGM Grand Paradise in August 1, 2008 as President. Prior to this, he was President

and General Manager of Wynn Resorts (Macau) S.A. from 2003 to 2007. Before coming to Macau, Mr. Bowie

spent 16 years with Park Place Entertainment Corporation in Australia, holding senior positions in gaming,

general finance and hotel operations. His last position held was Area Senior Vice President for Park Place

Entertainment Corporation overseeing their Australian operations. Mr. Bowie was educated in New Zealand

and obtained a Bachelor’s degree in Commerce from the University of Otago in 1980. He was recognized by

leading financial publication “Institutional Investor” as “Best CEO” in the All-Asia Executive Team survey for

three consecutive years from 2015 to 2017. He is currently a Governor of the American Chamber of Commerce

in Macau, a Member to Advisory Board of the Institute for the Study of Commercial Gaming at University of

Macau and an adjunct professor of Tourism and Leisure Management at University of Queensland. Previously,

he was a member of Australian Federal Government’s Tourism Forecasting Council, Chairman of Queensland’s

Responsible Gambling Advisory Committee and a member of the National Advisory Body on Gambling.

Non-executive directors

William m. Scott iv, aged 57, is a Non-executive Director and a member of the Nomination and Corporate

Governance Committee of the Company since March 16, 2011. Mr. Scott also served as President of MGM Asia

Pacific and its corporate predecessors since June 2014 and is the executive director and General Manager

of Diaoyutai MGM Hospitality, Ltd., the joint venture between MGM Resorts International and Diaoyutai State

Guesthouse (the hospitality arm of the PRC government) for the development of hospitality resources in

Greater China. Previously, Mr. Scott served as an Executive Vice President-Corporate Strategy and Special

Counsel of MGM Resorts International and various executive positions with that company from August 2009

to June 2014. From 1986 to 2009, Mr. Scott practiced law with firm Sheppard, Mullin, Richter & Hampton, LLP,

specializing in financing transactions, being a partner of the firm commencing January 1993. Mr. Scott holds

a Bachelor’s degree in history from the Dartmouth College in 1982 and a Juris Doctor degree from Union

University in 1985. He also obtained a Master of Laws in Banking and Financial Services Law from Boston

University in 1986.


14


daniel J. d’arrigo, aged 49, is a Non-executive Director and a member of the Audit Committee of the

Company since April 1, 2014. Mr. D’Arrigo is the Executive Vice President and Chief Financial Officer of MGM

Resorts International. He has held the positions of Executive Vice President and Chief Financial Officer since

August 2007 and the position of Treasurer of MGM Resorts International since 2009 to 2016. Mr. D’Arrigo

previously served as Senior Vice President-Finance of MGM Resorts International from February 2005 to

August 2007 and as Vice President-Finance of MGM Resorts International from December 2000 to February

2005. Mr. D’Arrigo holds a Bachelor’s degree in Business Administration from West Virginia University in 1991.

Kenneth a. rosevear, aged 68, was a Non-executive Director of the Company until February 14, 2018 and

a member of the Audit Committee of the Company until April 1, 2014. Mr. Rosevear is the President of MGM

Resorts Development, LLC (a subsidiary of MGM Resorts International), a position he has held since 1995.

He has served as director of MGM Grand Paradise since December 4, 2008. Prior to joining MGM Resorts

International, Mr. Rosevear was the President of Development of Caesars World for two years. Mr. Rosevear

was Chief Executive of Sun International Group, which operated casino resorts in southern Africa, from 1985

to 1993 and its Deputy Managing Director from 1983 to 1985. He held the position of Financial Director of

Southern Sun Group from 1982 to 1983. Mr. Rosevear began his career at Price Waterhouse in 1967 and

rose to partnership in 1979, a position he held until 1982. During his career, Mr. Rosevear has overseen the

design, construction and development of a number of gaming resorts internationally, including MGM MACAU.

Mr. Rosevear obtained a Certificate in the Theory of Accountancy from the University of the Witwatersrand,

Johannesburg and was qualified as a chartered accountant by the Chartered Accountants of South Africa in

1973. Mr. Rosevear resigned as a Non-executive Director of the Company with effect from February 14, 2018

due to his planned retirement. Mr. Rosevear has confirmed that he has no disagreement with the Board and

there are no other matters in relation to his resignation as a Non-executive Director of the Company which

need to be brought to the attention of the shareholders of the Company.

15


independent Non-executive directors

zhe Sun, aged 52, is an Independent Non-executive Director, the Chairperson of the Remuneration

Committee, a member of the Audit Committee and a member of the Nomination and Corporate Governance

Committee of the Company since September 27, 2010. Mr. Sun is an independent non-executive director of

China Resources Land Limited, a company listed on the Hong Kong Stock Exchange, a position he has held

since April 18, 2017. He is a professor at the Institute for International Studies and director of the Center for

U.S.-China Relations at Tsinghua University. Prior to that, he was a professor and deputy director of the Center

for American Studies at Fudan University between 2000 and 2007. Professor Sun has also taught at the East

Asian Institute, Columbia University and Ramapo College, New Jersey. Professor Sun is the author and editor

of eighteen books on comparative politics and U.S.-China relations. He has a Bachelor’s and a Master’s degree

in law from Fudan University in 1987 and 1989, respectively, and obtained a Doctor’s degree in political science

from Columbia University in 2000. He also obtained a Master of Art degree from Indiana State University in

1992.

Sze Wan patricia Lam, aged 51, is an Independent Non-executive Director, the Chairperson of the Nomination

and Corporate Governance Committee and a member of the Remuneration Committee of the Company since

March 16, 2011. She is the Chairman of Sotheby’s Asia and a member of the Board of Governors of the Hang

Seng Management College in Hong Kong. Now based in Hong Kong, Ms. Lam previously held the post of

Head of Sotheby’s Private Client Services Department in London before her appointment as Chairman of

Sotheby’s Asia in 2004. She was also appointed as Chairman of Sotheby’s Diamonds, a retail joint venture

established in December 2005 between Sotheby’s and Diacore. She received her Bachelor’s degree in

Monetary Economics from the London School of Economics in 1990 and a post graduate diploma in Asian Arts

— Chinese, Japanese and Korean Arts at the School of Oriental and African Studies, London University in 1991.


16


peter man Kong Wong, aged 69, is an Independent Non-executive Director, a member of the Audit Committee,

a member of the Remuneration Committee and a member of the Nomination and Corporate Governance

Committee of the Company since November 30, 2012. Mr. Wong has over forty years of industrial, commercial

and public service experience. He is serving as a deputy to the 12th National People’s Congress of the

People’s Republic of China and he will continue to serve as a deputy to the 13th National People’s Congress

from 2018. Mr. Wong is currently the Chairman of M.K. Corporation Limited, Culture Resources Development

Co., Ltd. and North West Development Limited. Mr. Wong holds a Bachelor of Science Degree from the

University of California, Berkeley. He was nominated a Justice of the Peace in 1987 and was awarded Bronze

Bauhinia Star in 2003 for his valuable contributions to promote public services in Hong Kong. Mr. Wong has

an extensive record in public services. From 1979 to 1992, he served as a director of Kowloon-Canton Railway

Corporation and a member in Hong Kong Government’s Transport Advisory Board, Industry Development

Board and Trade Advisory Board. He was also a member of the Hong Kong Special Administrative Region

Preparatory Committee during 1996 and 1997 and a member of the Election Committee of the Second Chief

Executive of the Hong Kong Special Administrative Region in 2002. Mr. Wong currently holds directorships in

a number of public companies listed on the Hong Kong Stock Exchange. He is an independent non-executive

director of Glorious Sun Enterprises Limited, China Travel International Investment Hong Kong Limited, Sun

Hung Kai & Co., Limited, Sino Hotels (Holdings) Limited, Far East Consortium International Limited and New

Times Energy Corporation Limited. He is a non-executive director of Hong Kong Ferry (Holdings) Company

Limited. He was an independent non-executive director of Chinney Investments, Limited from March 27, 2004

to August 25, 2017.

russell Francis Banham, aged 64, is an Independent Non-executive Director, the Chairperson of the Audit

Committee, a member of the Nomination and Corporate Governance Committee and a member of the

Remuneration Committee of the Company since November 20, 2014. Mr. Banham is also a non-executive

Director of Wiggins Island Coal Export Terminal Pty. Ltd (the owner and operator of a coal handling facility in

Queensland Australia) and a member of the Audit and Risk Management Committee of the Queensland Audit

Office (which provides audit services to the public sector of Queensland Australia) since November 2017. Mr.

Banham retired from Deloitte CIS, Moscow Office in 2014, where he had been a partner since 2011. Before

that, he worked from 2007 to 2011 at Deloitte CIS in Almaty, Kazakhstan, and from 2002 to 2007 he worked

for Ernst and Young in Brisbane, Australia. Mr. Banham started his professional career as an auditor in 1974

working for Andersen and stayed at the Sydney Office, Australia, until 1984, from 1984 to 1985 he worked at

the Andersen Los Angeles office, United States of America, and from 1985 to 2002 he worked at the Andersen

Brisbane office, Australia. In his professional career in Australia, he was the lead audit partner for several

clients in the gaming and hospitality industries and acquired relevant experience in these sectors. In 2016,

Mr. Banham completed the Company Directors’ Course of the Australian Institute of Company Directors and

is a Graduate of the Australian Institute of Company Directors. He has a Bachelor of Commerce in Accounting

degree, from the University of New South Wales, Sydney and is a Fellow of the Institute of Chartered

Accountants in Australia.

17


SeNior maNaGemeNt

John L. Shigley, aged 61, is our Chief Operating Officer of Gaming. Mr. Shigley has been with the Company

since January 2014. Mr. Shigley oversees our casino operations, casino marketing, VIP marketing and VIP

operations for both MGM MACAU and MGM COTAI. Mr. Shigley also oversees hotel, food and beverage

operations for MGM MACAU. Having been with MGM Resorts International since 2002, Mr. Shigley brings

with him a wealth of experience and accomplishments. Just prior to joining us here in Macau, he served as

President and Chief Operating Officer of MGM Grand Ho Tram Beach in Vietnam. His previous experience

with MGM Resorts International includes serving as Executive Vice President — Operations and Executive

Vice President/Chief Financial Officer for MGM Grand Las Vegas, and Executive Vice President of New York-

New York Hotel and Casino. Before joining MGM Resorts International, Mr. Shigley served as President of both

Caesars Palace in Las Vegas and Primm Valley Resorts. He also held executive positions at Caesars World

and Caesars Tahoe. Mr. Shigley graduated with a Bachelor of Science in Accountancy from Northern Illinois

University and is also a licensed certified public accountant in the state of Nevada, USA.

zhi Qi (hubert) Wang, aged 50, is our Senior Vice President — Finance & Chief Financial Officer. Mr. Wang

has been with the Company since July 2011. As the most senior finance executive at MGM China, Mr. Wang

plays a key role in both daily operations and corporate strategies and affairs. Mr. Wang is a seasoned

executive with a wealth of knowledge in the operation of integrated resorts and corporate finance. He had

worked for a number of large integrated resort companies in the United States and Canada, including Caesars

Entertainment Inc. and Las Vegas Sands Corporation before he joined MGM China. He held senior positions

in either property operations or corporate finance in these companies. Mr. Wang has been instrumental in

leading yield management and continuous improvement business initiatives. He has also successfully led the

execution of key technology and business process innovations for our business. Mr. Wang holds a graduate

degree in Master of Business Administration.

antonio Jose menano, aged 55, is our Company Secretary and Senior Vice President, Legal & General

Counsel. Mr. Menano originally joined MGM Grand Paradise as Company Secretary and Director, Legal &

Administrative Affairs on September 1, 2005. Before joining us, he was the director of Air Law, Air Transport &

International Relations for the Civil Aviation Authority of Macau for more than ten years. In this capacity, he was

responsible for negotiation of air service agreements, drafting of Macau Special Administrative Region civil

aviation laws and regulations and providing legal support to the Civil Aviation Authority. Simultaneously, Mr.

Menano worked as a Government Delegate in Air Macau Company Limited and previously worked in Instituto

de Acção Social de Macau. He graduated with a law degree from the University of Coimbra.


18


yuen ying (Wendy) yu, aged 50, is our Senior Vice President, Human Resources with responsibilities for all

HR functions at both MGM MACAU and MGM COTAI. Ms. Yu has been with the Company since July 2009

after having spent two decades being actively involved in the transformation of Macau’s hospitality and

human resources industries. Ms. Yu started her hospitality career with the Hyatt Regency Macau and then

was hired as Human Resources Manager of Holiday Inn Macau from its pre-opening stage. Subsequently she

moved and worked for an assignment in Shanghai with the New World Group. Upon returned to Macau, she

left the corporate world for a one-year stint as a lecturer for the Institute of Tourism Education in Macau. She

then joined the Westin Resort Macau where she held the position of Director of Human Resources and was

in charge of the organizational realignment when the Westin brand was integrated into the Starwood Family.

From 2003 to 2008, Ms. Yu was the Vice President of Human Resources for Wynn Resorts (Macau) S.A. as

part of the opening team. Prior to joining our Company, Ms. Yu returned to Starwood Hotels and Resorts to set

up their opening teams for their Sheraton and St. Regis projects in Cotai. Ms. Yu graduated with a Bachelor’s

degree in business administration in Personnel Management from the University of East Asia Macau (now

University of Macau).

mel hansen, aged 51, is our Senior Vice President of Design, Development and Construction. Mr. Hansen has

been with the Company since September 2011. Mr. Hansen oversees the planning and development of our

expansion projects with focus on our Cotai project. Mr. Hansen is a seasoned professional with over a decade

of senior management experience in casino and resort development. Since joining MGM Grand Las Vegas in

1996, Mr. Hansen was responsible for various opening and expansion projects in Las Vegas, New York and

South Africa. From 2004 to 2006, he was posted to Macau as Vice President for MGM Mirage to oversee the

development of MGM MACAU.

rahul Kaushik, aged 45, is our Senior Vice President of Mlife Experience & Customer Relationship Marketing.

Mr. Kaushik has been with our Company since December 2014. He oversees Mlife, our new Customer

Relations & Loyalty Program, and is working to further define and deliver the Company’s strategies to attract

more customers and enhance the quality of relationship with our existing customers. Prior to joining our

Company, Mr. Kaushik served as the Vice President of CRM & Loyalty at Sands China where he led the loyalty

and customer engagement programs for their four properties in Macau. Prior to that he was the Executive

Director at Wynn Las Vegas where he was responsible for revitalizing Hotel Sales & Marketing, as well as

Planning & Development for the Encore Resort. Mr. Kaushik graduated with a Bachelor’s degree in Engineering

from Delhi College of Engineering, India, and an MBA from Southern Methodist University, Dallas, USA.

19


Sarah a. rogers, aged 38, is our Senior Vice President of Strategy & Corporate Responsibility. Ms. Rogers has

been with the Company since August 2015. She is responsible for leading the strategy and communication of

our Company and our corporate responsibility initiatives. Prior to joining the Company, Ms. Rogers served as

Vice President of Investor Relations for MGM Resorts International since 2009. In her previous role, Ms. Rogers

successfully communicated MGM Resorts International’s financial messaging through important projects such

as US$25 billion in capital raises, the opening of City Center and the initial public offering of MGM China.

Before her career with MGM Resort International, Ms. Rogers was with the Deutsche Bank Securities, Inc, in

New York from 2002 to 2009, where she held various positions in institutional equities and fixed income.

Ms. Rogers is a graduate of the American University of Paris, with a Bachelor of Arts in International Business

Administration.

Scott L. Wessel, age 46, is our Senior Vice President, Digital and Technology Solutions. Mr. Wessel has been

in this position since 2013. He currently oversees all aspects of the Technology/Digital environment and

provides executive oversight/direction for all technological, infrastructure, application, and digital solutions as

well as the information security program at both MGM MACAU and MGM COTAI. Previously, Mr. Wessel spent

over 20 years at MGM Resorts International, which included a 4-year assignment in Macau. During his time

with MGM in Las Vegas, Nevada, USA, he held various management positions in Information Technology such

as Director, Application Support, Director, Program Management & Executive Director, Information Technology

Strategy. During this time, he was responsible for overseeing the governance of a US$20 million project

portfolio as well as the direct management and oversight of a US$125 million capital budget for a multi-faceted

hotel/casino/retail/residential project in Las Vegas. From 2006-2008, during the planning and opening stages

of MGM MACAU, Mr. Wessel was in the role of Director, Information Technology directing all facets of the

technology implementation. He rejoined MGM MACAU as our Vice President of Information Technology in 2011

and in 2013, he became the Senior Vice President, Digital & Technology Solutions for MGM China. Mr. Wessel

has a Bachelor Degree in Hotel Administration from the University of Nevada, Las Vegas and a Masters in

Information Technology from American Intercontinental University.

michael G. holubowskyj, aged 53, is our Senior Vice President of Security & Safety. Mr. Holubowskyj has

been with the Company since November 2008. He is responsible for overseeing all security and safety

operations and risk management processes in MGM MACAU and MGM COTAI. Mr. Holubowskyj has 31 years

of experience in the security and policing field. Before joining our Company, Mr. Holubowskyj was the Head

of Security Services for the Hong Kong Jockey Club from 2007 to 2008. Prior to that he was the Director

of Security for Wynn Resorts (Macau) S.A. from 2006 and 2007, where he helped establish the security

department in preparation for the opening of the resort. From 2004 to 2006, Mr. Holubowskyj worked as the

Director of Security, Safety, Fire and Health Services for Hong Kong Disneyland. Before joining the private

sector security industry, Mr. Holubowskyj spent 17 years in law enforcement with the Hong Kong Police Force,

where he attained the rank of Superintendent of Police. He graduated from the University of London with a

Bachelor of Science (Honors) in Mathematics and Statistics. He also obtained a Master’s degree in business

administration from Heriot Watt University in the United Kingdom.


We continue to execute our strategies on improving customer experience, employee engagement and operational efficiency. We are refurbishing key gaming areas in MGM MACAu to improve traffic flow and to capture more high-end mass business. We continue to improve operating efficiencies to further enhance

our first-class property which embodies luxury, intimacy and inspiration while introducing new innovative gaming products to enhance our customer experience. We are working on technologies to enhance our analytical capability for operations and marketing to enable us to deliver focused personalized marketing programs.

managementDIsCussIon

anD analysIs

21

management DIsCussIon anD analysIs

22


BuSiNeSS overvieW

MGM MACAU opened in December 2007 and has

a casino floor area of approximately 32,134 square

meters, with 1,019 slot machines, 427 gaming tables

and multiple VIP and private gaming areas. The

hotel comprises a 35-storey tower with 582 deluxe

rooms, 468 standard guest rooms, 99 luxury suites

and 15 private luxury villas. In addition, the resort

offers luxurious amenities, including 8 diverse

restaurants and bars, retail outlets, world-class pool

and spa facilities, and approximately 1,600 square

meters of convertible convention space. The resort’s

focal point is the signature Grande Praça and

features Portuguese-inspired architecture, dramatic

landscapes and a glass ceiling rising 25 meters

above the floor of the resort. Our property is directly

connected to the One Central complex, which

features many of the world’s leading luxury retailers

and includes Mandarin Oriental Hotel and serviced

apartments.

The Group has continuously been focusing on

profitability, lowering the operating cost base, and

actively managing the gaming floor and room yields.

We are selectively allocating capital expenditure to

enhance and refine MGM MACAU and progress the

development of our new MGM COTAI property. Our

revenue and adjusted EBITDA increased by 3.0% and

2.1% to HK$15,356.0 million and HK$4,587.4 million

respectively for the year ended December 31, 2017

over the prior year. For the year ended December

31, 2017, our operating profit decreased by 15.3% to

HK$2,624.2 million primarily due to acceleration of

pre-opening costs amounting to HK$459.1 million

for the preparation of MGM COTAI that opened on

February 13, 2018. Profit attributable to owners of the

Company decreased by 23.6% to HK$2,320.2 million

also due to the recognition of a deferred tax liability

of HK$317.1 million pertaining to the distributable

profit of MGM Grand Paradise during the year.

overview

MGM China, a leading developer, owner and operator of gaming and lodging resorts.

MGM MACAu, a Forbes Five-star luxury integrated resort inspired by the arts with

every element of the resort infused with creativity and style. MGM CotAI, the latest

addition to the MGM portfolio in China. Designed as the “jewelry box” of Cotai, it

offers gaming area and approximately 1,400 hotel rooms and suites, meeting space,

retail, food and beverage and other non-gaming offerings, as well as the Mansion for

the ultimate luxury experience.

23


The Macau and China governments implemented

numerous policy changes starting in the middle of

2014 which led to a decline in the gross gaming

revenues in the Macau market. We are encouraged

that total gross gaming revenue has grown since

August 2016 through December 2017. We believe

that the recovery has been driven by new gaming

and non-gaming offerings in the Macau market. At

the same time, there is an ongoing market share

migration from the Macau Peninsula to Cotai as more

resorts were opened in the Cotai area in recent years.

In view of that, we expect that our expansion into

Cotai in 2018 will benefit our overall gaming market

share, especially with our exciting and diversified

entertainment offerings.

MGM COTAI opened on February 13, 2018 with an

expected total development cost of approximately

HK$27 billion, excluding land costs and capitalized

interest. Conveniently located with various access

points from other hotels and public areas, MGM

COTAI offers gaming area and approximately 1,400

hotel rooms and suites, meeting space, retail, food

and beverage and other non-gaming offerings, as well

as the Mansion for the ultimate luxury experience.

MGM COTAI will also offer Asia’s first dynamic theater

and a spectacle that will introduce more advanced

and innovative forms of entertainment to Macau.

On January 25, 2018, the Group received notification

from the Gaming Inspection and Coordination Bureau

of Macau (“DICJ”) of the approval of 100 new gaming

tables and 982 slot machines for operation at MGM

COTAI in January 2018, and 25 new gaming tables

for operation effective on January 1, 2019 for a total of

125 new gaming tables at MGM COTAI in aggregate.

In addition, DICJ also approved the initial transfer of

77 gaming tables from MGM MACAU to MGM COTAI.

Under the land concession of MGM COTAI, the

Group was required to complete the development by

January 2018, however, the development period of

this land concession has been extended for 3 months

to April 2018 by the Macau Government, without

payment of any fines, due to the delays caused by

Typhoon Hato that struck Macau in 2017.

24



maCau’S GamiNG aNd touriSm marKetS

A number of factors have adversely impacted

the Macau gaming market commencing from the

second half of 2014 as a result of China and Macau

Government policies that began to take effect

including:

— The introduction of smoking restrictions on mass

gaming floors implemented in October 2014;

— Extension of smoking restriction from mass

gaming floors to VIP areas effective on January

1, 2018 which requires smoking lounges to

be set up in all VIP areas and the existing

smoking lounges in the mass gaming floors

to be upgraded to comply with the enhanced

technical standards within a one-year transition

period after the effective date;

— Certain political initiatives introduced by the

China and Macau Government, including an

anti-corruption campaign, currency transfer

restrictions and a new border currency

declaration system. This particularly affected the

number of high-end or premium players visiting

the Group’s VIP, main floor and slot machine

gaming operations; and

— Tightened regulations on financial accounting,

anti-money laundering reporting and accounting

records required to be maintained for gaming

promoters (started in the fourth quarter of 2015)

and a ban on mobile telephone usage at VIP

gaming tables from May 2016. These changes

particularly impacted the Group’s VIP gaming

performance.

25


Total gross gaming revenue in the Macau market

decreased by 9.1% to HK$140.2 billion for the eight

months ended August 31, 2016 over the comparable

period in 2015. Since that time, total gross gaming

revenue has stabilized with growth occurring in

consecutive months from August 2016 through

December 2017 which mainly is attributable to

opening of several new large-scale integrated resorts

in Cotai during that period. Total gross gaming

revenue increased by 19.1% to HK$258.0 billion for

the year end December 31, 2017 over the prior year.

The Statistics and Census Service of the Macau

Government reported that visitor arrivals reached

32.6 million in 2017 which increased by 5.4% over the

prior year. Customers travelling to Macau are typically

from nearby regions in Asia including mainland

China, Hong Kong, Taiwan, South Korea and Japan.

Approximately 68.1% of visitors to Macau in 2017 were

from mainland China which increased by 8.5% over

the prior year and reached 22.2 million during the

year.

We are optimistic about the long-term growth of the

Macau market due to:

— The financial investments made by gaming

concessionaires, including MGM China, in the

opening of new properties providing superior

and diversified products to further position

Macau as a world class tourism center;

26



— Infrastructure improvements, such as the

opening of Taipa Ferry Terminal in June 2017;

the expansion of the Macau Airport; the

expected opening of Hong Kong — Zhuhai

— Macau bridge during 2018; the Zhuhai and

Macau border gate 24-hour single check point;

the Macau Light Rapid Transit System, that are

all expected to facilitate more convenient travel

to Macau;

— The ongoing expansion of the China High

Speed Rail routes to Zhuhai border gate from

key cities in China; and

— The continuous growth of China outbound

tourism, particularly in light of the growing

middle class.

CompetitioN

Currently, there are six gaming concessionaires

operating in Macau, each of which has completed

or has expansion plans underway. As at December

31, 2017, there were 40 casinos in Macau. Four

development projects in the Cotai area were

completed in 2015 and 2016 with further development

projects to be completed within the next three years

including our MGM COTAI which opened on February

13, 2018. There is an ongoing market share migration

from the Macau Peninsula to Cotai. As a result, our

overall gaming market share declined from 8.2% as at

December 31, 2016 to 7.0% as at December 31, 2017

due primarily to the migration of casino patronage to

Cotai following the new property openings in Cotai.

Competitive pressures in the Macau market will

continue to increase in the future especially as more

capacity is brought on line. We believe our expansion

into Cotai in 2018 will benefit our overall gaming

market share.

Our competition is not geographically limited to the

Macau market. We compete with similar businesses

in other parts of world including, but not limited to,

integrated resorts in Cambodia, Vietnam, Saipan,

South Korea, Singapore, the Philippines, Australia

and Las Vegas.

our Competitive StreNGthS aNd operatiNG

StrateGieS

Our competitive strengths lie in offerings of high-

quality gaming, hospitality and entertainment

experiences in our integrated destination resorts;

segment and targeted marketing to various customer

groups through our Mlife customer relationship

program; strong analytical capability and effective

execution of our strategies by our operations team.

27


We continue to execute our strategies on improving

customer experience, employee engagement and

operational efficiency. We are refurbishing key

gaming areas in MGM MACAU to improve traffic flow

and to capture more high-end mass business. We

continue to improve operating efficiencies to further

enhance our first-class property which embodies

luxury, intimacy and inspiration while introducing new

innovative gaming products to enhance our customer

experience. We are working on technologies to

enhance our analytical capability for operations

and marketing to enable us to deliver focused

personalized marketing programs. We continue to

review our business relationship with each of our

gaming promoters and identify potential gaming

promoters to grow our VIP business. We manage our

gaming mix by continuously evaluating table yield,

focusing on measuring the number of table open

hours in relation to business volume. We are always

evaluating the table limits and constantly reviewing

the possible reallocation of tables to maximize our

table utilization and profitability.

Beyond gaming, we continue to improve our

customer experiences by adding and enhancing our

non-gaming offerings. We are adding retail offerings

and refurbishing our restaurants to maintain our

competitiveness in the Macau market. We continue

to organize and sponsor exhibits and events in our

Grande Praça and Art Space. With almost twice the

square footage of MGM MACAU, the scale of our new

MGM COTAI property will allow us to capitalize on

our international expertise in providing exciting and

diversified entertainment offerings. Our MGM COTAI

theater is a transformable space, the first of its kind

in Asia and the only one in the world of this scale,

offering a wide range of entertainment options to

draw visitors from around the world. Our Spectacle,

situated at the heart of MGM COTAI, is enriched

with incredible experiential technology elements

to entertain our guests. We will continue to deliver

exciting and memorable events to our properties

in support of the Macau Government’s vision for

diversification.

We continue to provide professional and service

training to our employees with the goal of building a

culture of executional excellence.

SeGmeNt iNFormatioN

The Group currently operates in one operating

segment which is the ownership and management

of its casino, hotel, food and beverage, and retail

operations in Macau. A single management team

reports to the Group’s Chief Executive Officer (being

the chief operating decision-maker) who allocates

resources and assesses performance based on

the consolidated revenue, net results, assets and

liabilities prepared under IFRSs for the entire

business. Accordingly, the Group does not present

separate segment information.

28



diSCuSSioN oF reSuLtS oF operatioNS

Financial results for the year ended december 31, 2017 compared to financial results for the year ended

december 31, 2016

operatiNG reveNue

The following table sets forth the operating revenue for the years ended December 31, 2017 and 2016.

For the year ended

december 31

2017 2016

hK$’000 HK$’000

Casino revenue 15,053,622 14,606,066

VIP gaming operations 5,443,148 5,593,080

Main floor table gaming operations 8,213,333 7,758,617

Slot machine gaming operations 1,397,141 1,254,369

other revenue 302,384 301,402

Hotel rooms 75,222 79,031

Food and beverage 155,272 167,103

Retail and others 71,890 55,268

operating revenue 15,356,006 14,907,468

Total operating revenue of HK$15,356.0 million for the year ended December 31, 2017 was 3.0% higher than

the prior year. The increase in operating revenue was directly attributable to the recovery of the Macau gaming

market since August 2016 through December 2017, although our overall gaming market share declined in the

current year due to an ongoing migration of patronage from the Macau Peninsula to Cotai.

29


Summary StatiStiCS

The following table presents the key measurements we use to evaluate operating revenues.

For the year ended

december 31

(in thousands, except for number of gaming tables and 2017 2016

slot machines, percentage, and REVPAR) hK$’000 HK$’000

(unaudited) (unaudited)

Number of VIP gaming tables 145 162

VIP table games turnover 269,102,995 268,684,749

VIP gross table games win (1) 8,566,563 8,631,084

VIP table games win percentage

(calculated before commissions and incentives) 3.18% 3.21%

Average daily gross win per VIP gaming table 162.1 145.6

Number of main floor gaming tables 270 254

Main floor table games drop 40,200,290 40,799,559

Main floor gross table games win (1) 8,138,837 7,688,849

Main floor table games win percentage 20.2% 18.8%

Average daily gross win per main floor gaming table 82.5 82.8

Number of slot machines 1,019 1,060

Slot machine handle 31,025,807 28,814,923

Slot machine gross win (1) 1,406,587 1,257,300

Slot hold percentage 4.5% 4.4%

Average daily win per slot 3.8 3.2

Room occupancy rate 96.0% 95.4%

REVPAR (2) 2,052 2,161

Notes:

(1) Casino revenue is different to the total of “VIP gross table games win”, “main floor gross table games win” and “slot

machine gross win” because casino revenue is reported net of commissions and incentives. The following table sets

forth a reconciliation of the gaming wins to casino revenue.

30



For the year ended

december 31

2017 2016

hK$’000 HK$’000

VIP gross table games win 8,566,563 8,631,084

Main floor gross table games win 8,138,837 7,688,849

Slot machine gross win 1,406,587 1,257,300

Gross casino revenue 18,111,987 17,577,233

Commissions and incentives (3,058,365) (2,971,167)

Casino revenue 15,053,622 14,606,066

(2) Revenue per available room, expressed in HK$, is arrived after inclusion of services provided for hotel rooms to

certain customers and guests without charge.

CaSiNo reveNue

Casino revenue increased by 3.1% to HK$15,053.6

million for the year ended December 31, 2017. The

components of our gaming operations were:

vip Gaming operations

Gaming Promoters

A significant amount of our VIP casino play is referred

to us by gaming promoters, with whom we have

established good business relationships and who

have historically played an important role in the

Macau gaming market. Gaming promoters introduce

high-end VIP players to us and normally assist

those customers with their travel and entertainment

arrangements. In addition, gaming promoters may

extend credit to their players.

From time to time and on a case-by-case basis, we

grant credit, which is non-interest bearing, to certain

gaming promoters at the beginning of each month

to facilitate their working capital requirements. The

credit is typically secured by the commissions earned

along with business or personal cheques, promissory

notes and financial guarantors.

In exchange for their services, we compensate the

gaming promoters by paying them a commission

based on a percentage of the gross table games win

or a percentage of the table games turnover they

generate. The commission is settled on a monthly

basis normally no later than the second business day

of the succeeding month and prior to the re-issuance

of credit.

They also earn a complimentary allowance based

on a percentage of the table games turnover they

generate, which can be applied to hotel rooms, food,

beverage and other discretionary customer-related

expenses.

31


The quality of gaming promoters with whom we

engage in business is important to our reputation

and ability to operate in compliance with our

Subconcession Contract and Macau gaming laws.

We continue to review our business relationship with

each of our gaming promoters and identify potential

new gaming promoters having particular regard

to their financial performance and management

capability.

In-house VIP players

In addition to VIP players introduced to us by

gaming promoters, we also have in-house VIP

players sourced directly through the Company’s own

marketing channels. These in-house VIP players

typically receive a commission and an allowance

for hotel rooms, food and beverage based on a

percentage of their rolling chip turnover.

We selectively grant credit to certain in-house VIP

players whose level of play and financial resources

meet our approval criteria. This credit is typically

unsecured although we may be provided front

money as a deposit, or security by personal cheques

as collateral.

We conduct a number of credit checking procedures

including the receipt of various signed documents

from each credit recipient. If permitted by applicable

laws, these documents may aid in legally enforcing

collections in countries where the gaming promoters

and VIP players reside.

In order to minimize the credit risk with gaming

promoters and in-house VIP players, the Group has

a designated management team responsible for

determination of credit limits, credit approvals and

other monitoring procedures to ensure that follow-up

action is taken to recover all receivables. The Group

has been successful in collecting some receivables

previously considered to be irrecoverable. The Group

regularly reviews the recoverable amount of each

individual debt to ensure that adequate impairment

losses are made for irrecoverable amounts.

While revenue for the VIP gaming operations

increased in the Macau market in 2017, we lost

market share following the migration of patronage

to the new Cotai properties. Our revenue from

VIP gaming operations decreased year-over-year

by 2.7% to HK$5,443.1 million for the year ended

December 31, 2017 due to a slight decline in VIP

table games win percentage from 3.21% in 2016 to

3.18% in 2017 while the turnover remained constant

despite the market share migration from the Macau

Peninsula to Cotai. The total amount of commissions

and incentives netted against casino revenue was

HK$3,123.4 million and HK$3,038.0 million in 2017

and 2016 respectively. We expect to improve our

competitiveness in the Macau market following the

completion and opening of our new MGM COTAI

property. We will continue to pursue additional VIP

business opportunities for MGM MACAU.

32



main Floor table Gaming operations

Main floor table gaming operations in the Macau

market are also referred to as the “mass marketing

gaming operation”. Unlike VIP players, main floor

players do not receive commissions from the Group

and, accordingly, the profit margin from the main

floor business is higher than the VIP operation. The

main floor business is the most profitable part of our

operations as well as for the Macau gaming market

as a whole. We believe this operation represents the

most potential for sustainable growth in the future.

For the year ended December 31, 2017, revenue from

main floor table gaming operations increased year-

over-year by 5.9% to HK$8,213.3 million, compared

to a 1.5% year-over-year increase in the prior year,

due primarily to an increase in main floor table games

win percentage from 18.8% in 2016 to 20.2% in 2017.

Despite the changing business conditions in the

Macau gaming market and market share migration

from the Macau Peninsula to Cotai, the effect on our

revenues was mitigated by our continuous efforts

to improve the gaming experience of our high value

main floor players in MGM MACAU by renovating the

dedicated exclusive gaming space for their use. We

continued to reallocate tables from VIP gaming to

our main floor gaming areas to maximize our yield.

We leveraged our Golden Lion Club as a vehicle to

attract and retain those high value main floor players

through exclusive customer service and promotions.

33


We also benefited from the recovery of the Macau

gaming market especially in mass gaming operations

since August 2016 through December 2017. In 2017,

MGM MACAU had 270 main floor gaming tables in

operation compared with 254 main floor gaming

tables in 2016.

Going forward, we will continue to evaluate our main

floor gaming areas to maximize table utilization, to

refurbish our gaming areas, to innovate our gaming

products and to invest in technologies and analytical

capability to enhance table productivity and customer

retention.

Slot machine Gaming operations

Revenue from slot machine gaming operations

increased year-over-year by 11.4% to HK$1,397.1

million for the year ended December 31, 2017. The

increase in revenue was due to an increase in slot

handle by 7.7% to HK$31,025.8 million during the

current year, primarily due to the continuous recovery

of the Macau gaming market since August 2016 and

a slight increase in slot hold percentage from 4.4% in

2016 to 4.5% in 2017.

We continuously monitor the mix of our casino games

in order to maximize our profitability. We continue to

develop Mlife in order to increase brand awareness

and customer loyalty. In conjunction with the Mlife

rollout, we are developing technologies to enhance

our analytical capability to enable us to deliver

personalized marketing programs.

34



— “Beauty in the Air” featuring 40 vibrant glass

butterflies flit through the air, chasing each

other around the 17 enormous flowers blooming

throughout our Grande Praça as well as our

spacious nests, which have emerged as the

perfect places for our guests to relax and enjoy

the garden;

— “A Golden Way of Life — Très’Ors” presenting a

unique selection of gold creations and artifacts,

with over 250 works dating from the 17th

century to the present; and

— “Learn & Play! teamLab Future Park” featuring

the first-ever festive-themed Sketch Christmas

as well as Graffiti Nature — Mountains and

Valleys within the Greater China region, which

allows our guests to stroll through this Future

Park with their creativity and innovation, and

discover colorful interactive installations in the

always-evolving environment.

These exhibits and events attracted visitors to our

property and have created a sense of anticipation

among our customers, local communities and tourists

about the activities at MGM MACAU. In addition,

we continue to improve our customer experience

by enhancing our hotel, food, beverage and retail

offerings by expanding and refurbishing the non-

gaming areas in MGM MACAU.

other reveNue

Other revenue includes hotel rooms, food, beverage,

retail and entertainment. Hotel rooms, food and

beverage revenue decreased year-over-year by

6.4% to HK$230.5 million for year ended December

31, 2017 primarily due to more non-gaming offerings

brought on line with the new property openings in

Cotai. The non-gaming facilities and services are

important for MGM MACAU to establish our brand

and maintain our popularity in Macau and the region

in order to encourage visitation and extend the

length of customers’ stay within MGM MACAU.

Non-gaming attractions and Branding activities

We recognize the importance of brand awareness

in growing our business. We have enhanced our

marketing activities to take advantage of our

internationally recognized brand. Brand-building

initiatives are driven through promotions, events,

strategic alliances and public relation activities.

The following are some of the exhibits and events we

conducted in 2017:

— Art Exhibition in L2 Showcase featuring themed

artworks by artists from Macau;

— MGM Water Aurora featuring an eight-meter-

tall water-sky aquarium with fish darting among

multi-hued corals located in our Grande Praça;

35


operatiNG CoStS aNd expeNSeS

The major operating costs and expenses for the years ended December 31, 2017 and 2016 were:

For the year ended

december 31

2017 2016

hK$’000 HK$’000

Special gaming tax and special levy to the Macau Government 7,214,106 6,998,604

Inventories consumed 302,666 273,074

Staff costs 2,324,209 1,949,165

Other expenses and losses 2,091,779 1,815,796

Depreciation and amortization 799,045 771,712

Finance costs 7,273 53,255

Income tax expense 318,294 15,101

Special gaming tax and special levy to the macau

Government

Special gaming tax and special levy to the Macau

Government increased year-over-year by 3.1% to

HK$7,214.1 million in 2017. This increase is attributable

to the higher gross casino revenue during the current

year.

inventories consumed

Inventories consumed increased year-over-year by

10.8% to HK$302.7 million in 2017. This increase was

primarily due to increase in consumptions of supplies,

including gaming supplies such as cards and other

supplies in response to our business activities and

the preparation works of MGM COTAI.

Staff costs

Staff costs increased year-over-year by 19.2% to

HK$2,324.2 million in 2017 which was primarily due

to hiring of additional staff in preparation for the

opening of MGM COTAI and the salary increment for

staff promotions in 2017.

other expenses and losses

Other expenses and losses increased year-over-year

by 15.2% to HK$2,091.8 million in 2017, which mainly

result from:

Advertising and promotion expense. Advertising

and promotion expense increased by 34.1% from

HK$416.6 million in 2016 to HK$558.5 million in 2017.

The increase resulted from more marketing activities

being organized during the current year in response

36



to the recovery of the Macau gaming market and

increased competition due to new properties opening

in Cotai as well as marketing activities for MGM

COTAI.

License fee and marketing fees. License fee and

marketing fees due to related companies increased

by 3.5% from HK$274.9 million in 2016 to HK$284.4

million in 2017. The increase resulted from the higher

revenue during the current year.

Reversal of allowance for doubtful debts, net.

Allowance for doubtful debts, net, was a gain of

HK$42.1 million and HK$47.4 million in 2017 and 2016

respectively. There was no change in the policy on

the allowance for doubtful debts. The gain primarily

resulted from recovery of doubtful debts provided for

in previous years.

depreciation and amortization

Depreciation and amortization increased year-

over-year by 3.5% to HK$799.0 million in 2017. This

increase was primarily due to renovation works

completed and placed into service at MGM MACAU

during the current year as well as new furniture and

equipment placed into service. This was partly offset

by the impact of full depreciation of certain assets in

2017 and a change in the estimated useful lives of

buildings and improvements for MGM MACAU, which

was effective from November 1, 2017, to better reflect

the estimated periods during which these assets are

expected to remain in service. Details of change in

the estimated useful lives are set out in note 4 to the

consolidated financial statements.

Finance costs

Total borrowing costs increased by HK$151.2 million

to HK$696.1 million in 2017 mainly due to a HK$152.2

million increase in interest incurred for additional

bank borrowings related to funding requirements for

MGM COTAI development as well as an increase in

interest margin.

Finance costs decreased by 86.3% from HK$53.3

million in 2016 to HK$7.3 million in 2017 mainly due

to HK$688.9 million of total borrowing costs being

capitalized to construction in progress in 2017 (2016:

HK$491.7 million).

income tax expense

Income tax expense in 2017 primarily related to a

deferred tax liability of HK$317.1 million the Company

provided on the distributable profit of MGM Grand

Paradise, calculated at the applicable statutory rate

at the reporting date. Prior year expense was related

to the Macau dividend withholding tax under the

extended tax concession arrangement entered with

the Macau Government in 2012. Details of income

tax expense are set out in note 11 to the consolidated

financial statements.

proFit attriButaBLe to oWNerS oF the

CompaNy

Profit attributable to owners of the Company

decreased by 23.6% from HK$3,036.5 million in 2016

to HK$2,320.2 million in 2017.

37


adJuSted eBitda

The following table sets forth a reconciliation of Adjusted EBITDA to its most directly comparable IFRS

measurement, profit attributable to owners of the Company, for the years ended December 31, 2017 and 2016.

For the year ended

december 31

2017 2016

hK$’000 HK$’000

Profit attributable to owners of the Company 2,320,185 3,036,508

Add/(less):

Depreciation and amortization 799,045 771,712

Interest income (5,046) (6,454)

Finance costs 7,273 53,255

Net foreign currency difference (16,505) 707

Income tax expense 318,294 15,101

Share-based payments 79,900 72,980

Corporate expenses (unaudited) 414,375 384,167

Pre-opening costs(1) (unaudited) 624,583 165,530

Loss/(gain) on disposal/write-off of property and equipment,

construction in progress and other assets 45,331 (1,668)

Adjusted EBITDA(2) (unaudited) 4,587,435 4,491,838

Notes:

(1) Pre-opening costs mainly represented staff costs, marketing and advertising expenses incurred prior to the opening

of our MGM COTAI property. Pre-opening costs increased by 277.3% from HK$165.5 million in 2016 to HK$624.6

million in 2017. The increase was mainly attributable to preparation for the opening of MGM COTAI and it is typical

that pre-opening costs accelerate as a project approaches its opening date.

(2) Adjusted EBITDA is profit before finance costs, income tax expense, depreciation and amortization, interest income,

net foreign currency difference, share-based payments, pre-opening costs, corporate expenses which mainly include

administrative expenses of the corporate office and license fee paid to a related company, and property charges

and other non-recurring expenses. Adjusted EBITDA is used by management as the primary measure of the Group’s

operating performance and to compare our operating performance with that of our competitors. Adjusted EBITDA

should not be considered in isolation, construed as an alternative to profit or operating profit as reported under

IFRS or other combined operations or cash flow data, or interpreted as an alternative to cash flow as a measure of

liquidity. Adjusted EBITDA presented in this report may not be comparable to other similarly titled measures of other

companies operating in the gaming or other business sectors.

38



GeariNG ratio

The Group’s gearing ratio is calculated as net debt divided by equity plus net debt. Net debt comprises bank

borrowings, net of debt finance costs, less bank balances and cash. Equity comprised all capital and reserves

of the Group. The following table presents the calculation of the Group’s gearing ratio as at December 31, 2017

and 2016.

as at

december 31 December 31

2017 2016

hK$’000 HK$’000

Bank borrowings, net of debt finance costs 17,839,219 14,708,630

Less: bank balances and cash (5,283,387) (3,547,130)

Net debt 12,555,832 11,161,500

Total equity 8,512,356 7,216,696

Total capital 21,068,188 18,378,196

Gearing ratio 59.6% 60.7%

LiQuidity aNd CapitaL reSourCeS

CapitaL reSourCeS

We funded our working capital, operating expenses

and capital expenditures from cash generated

from our operations and bank borrowings. As at

December 31, 2017, our bank and cash balances and

available credit facilities were HK$5,283.4 million

and HK$4.81 billion respectively. This balance is

available for operations, new development activities

and enhancement to our properties and corporate

purposes.

39


Group CaSh FLoWS

The following table presents a summary of the Group’s cash flows for the years ended December 31, 2017 and

2016.

For the year ended

december 31

2017 2016

hK$’000 HK$’000

Net cash generated from operating activities 7,157,880 2,762,361

Net cash used in investing activities (6,773,410) (6,273,339)

Net cash generated from financing activities 1,348,971 1,638,903

Net increase/(decrease) in cash and cash equivalents 1,733,441 (1,872,075)

Cash and cash equivalents at the beginning of the year 3,547,130 5,421,058

Effect of foreign exchange rate changes, net 2,816 (1,853)

Cash and cash equivalents at the end of the year 5,283,387 3,547,130

Net cash generated from operating activities

Our net cash generated from operating activities was

primarily affected by operating income generated by

MGM MACAU and changes in working capital. Net

cash from operating activities was HK$7,157.9 million

in 2017 compared to HK$2,762.4 million in 2016. The

increase mainly resulted from the changes in our

working capital accounts offset by the decrease in

profit before tax during the current year.

Net cash used in investing activities

Net cash used in investing activities was HK$6,773.4

million in 2017 compared to HK$6,273.3 million in

2016. The major components of the cash flow used

in investing activities related to payments for the

construction of MGM COTAI and renovation work

carried out at MGM MACAU as well as purchase

of property and equipment in total amounting to

HK$6,559.7 million and HK$5,929.9 million in 2017

and 2016 respectively. Other amounts paid are

related to land use right premium and developers’

fees due to a related company in both years.

40



Net cash generated from financing activities

Net cash generated from financing activities was

HK$1,349.0 million in 2017 compared to HK$1,638.9

million in 2016. The decrease mainly resulted from

repayment of HK$604.5 million of term loan facility

that commenced in October 2017 and dividend

payments of HK$1,048.8 million and HK$805.6

million in 2017 and 2016 respectively, partially offset

by HK$3,600.0 million of revolving credit facility

net drawdown during the current year compared to

HK$2,900.0 million of revolving credit facility drawn

in the prior year.

CapitaL CommitmeNtS

As at December 31, 2017, the Group had the following capital commitments under construction contracts and

other capital related agreements that are not recorded in the consolidated financial statements:

as at

december 31 December 31

2017 2016

hK$’000 HK$’000

Contracted but not accounted for 642,581 4,224,259

iNdeBtedNeSS

As at December 31, 2017 and 2016, the Group had

drawn down bank borrowings of HK$17.99 billion

and HK$14.99 billion under our Fourth Supplemental

Agreement and Third Supplemental Agreement,

respectively. The Group had HK$4.81 billion and

HK$8.41 billion available to draw as at December 31,

2017 and 2016 respectively under those agreements.

CoNtiNGeNt LiaBiLitieS

As at December 31, 2017 and 2016, the Group had

given bank guarantees totaling HK$302.6 million

and HK$302.9 million respectively in relation to the

Subconcession, land concession and other operating

purposes.

term LoaN FaCiLity aNd revoLviNG Credit

FaCiLity

overview

On October 22, 2012, the Company and MGM Grand

Paradise as co-borrowers entered into an amended

and restated credit agreement (the “Amended Credit

Facilities”) with certain lenders. The Amended Credit

Facilities included a HK$4.29 billion term loan facility

and a HK$11.31 billion revolving credit facility.

41


On June 9, 2015, the Company and MGM Grand

Paradise as co-borrowers entered into a second

amended and restated credit agreement (the

“Second Amended Credit Facilities”) with certain

lenders. The Second Amended Credit Facilities

were effective on June 12, 2015, which extended the

maturity of the Amended Credit Facilities to April 29,

2019 and expanded the term loan facility set out in

the Amended Credit Facilities to HK$12.09 billion.

The aggregate amount of the Second Amended

Credit Facilities is HK$23.40 billion, consisting of

a HK$12.09 billion term loan facility and a HK$11.31

billion revolving credit facility. Borrowings under the

Second Amended Credit Facilities may be used for

proper corporate purposes of the Group and future

development opportunities including MGM COTAI.

On February 2, 2016, an amendment to the Second

Amended Credit Facilities was executed (the “Third

Supplemental Agreement”) to provide the Group with

the necessary covenant flexibility while MGM COTAI

was in the construction phase as discussed below.

An amendment to the Third Supplemental

Agreement was executed (the “Fourth Supplemental

Agreement”) on February 15, 2017 to continue to

provide the Group with further covenant flexibility

while MGM COTAI was in the construction phase, but

with a view to deleveraging following MGM COTAI

opening as discussed below. The Group incurred

and paid miscellaneous charges and bank fees of

approximately HK$34.0 million in relation to the

Fourth Supplemental Agreement during the current

year.

On December 29, 2017, the Group obtained the

consent of the relevant lender group for the

execution of an amendment and extension of the

existing credit facilities (the “Fifth Supplemental

Agreement”). The amendment includes changes to

the financial covenants and the repayment terms. The

execution of the Fifth Supplemental Agreement and

of the Amended and Restated Credit Agreement is

subject to finalization of required regulatory approval

and documentation.

principal and interest

As at December 31, 2017, HK$12.09 billion of the term

loan facility was fully drawn while HK$4.81 billion of

revolving credit facility was undrawn and available

for utilization up to March 2019. The term loan facility

is repayable on a quarterly basis commencing in

October 2017 and is to be fully repaid in April 2019.

Each drawdown under the revolving credit facility is

to be repaid in full on the last date of the respective

term but no later than April 2019.

The Second Amended Credit Facilities bear interest

at HIBOR plus a fixed margin of 1.75% per annum for

the first six months and thereafter a variable margin

ranging from 1.375% to 2.5% per annum based on the

Group’s leverage ratio. As at December 31, 2017, the

Group paid interest at HIBOR plus 2.50% per annum

(2016: HIBOR plus 2.00% per annum).

42



General Covenants

The Second Amended Credit Facilities contain

general covenants restricting the ability of the obligor

group (the Company and certain of its subsidiaries,

namely the Restricted Group) to, among other

things, enter into, dispose of or amend to certain

commitments and/or investments. With the approval

of the lenders there are certain permitted exceptions

to these restrictions.

Financial Covenants

Under the Second Amended Credit Facilities, the

Restricted Group was required to maintain a leverage

ratio at the end of each quarter while the loans

are outstanding. The leverage ratio was to be kept

within 4.5 to 1.0 for each quarter and reduced to no

greater than 4.0 to 1.0 for each quarter after the first

anniversary of opening of MGM COTAI. In addition,

the Group was required to maintain an interest

coverage ratio of no less than 2.5 to 1.0 at each

quarter end.

The leverage ratio under the Third Supplemental

Agreement was required to be maintained within 4.5

to 1.0 for quarters ended March 31, 2016 and June

30, 2016. This ratio would be increased to no greater

than 6.0 to 1.0 for each quarter ended September

30, 2016 through June 30, 2017 and reduced to no

greater than 5.5 to 1.0 and 5.0 to 1.0 for quarters

ended September 30, 2017 and December 31, 2017,

respectively. The leverage ratio would be reduced to

no greater than 4.5 to 1.0 for each quarter thereafter

through maturity.

The leverage ratio under the Fourth Supplemental

Agreement is required to be maintained within

4.5 to 1.0 for quarters ended March 31, 2016 and

June 30, 2016. This ratio is increased to no greater

than 6.0 to 1.0 for each quarter ended September

30, 2016 through December 31, 2017 and reduced

to no greater than 5.5 to 1.0 and 5.0 to 1.0 for

quarters ended March 31, 2018 and June 30, 2018,

respectively. The leverage ratio will be reduced to

no greater than 4.5 to 1.0 for each quarter thereafter

through maturity.

In addition, the Group is required to maintain an

interest coverage ratio of no less than 2.5 to 1.0 at

each quarter end.

Compliance with Covenants

The Group has complied with the general and

financial covenants contained in the Fourth

Supplemental Agreement, Third Supplemental

Agreement and Second Amended Credit Facilities

as set forth above for the years ended December 31,

2017 and 2016.

mandatory prepayments

The Second Amended Credit Facilities contain

mandatory prepayment provisions which include,

among other things, prepayment of all outstanding

loans, together with accrued interest and all other

amounts due thereunder, upon a change of control or

sale of the MGM Grand Paradise business or COTAI

project.

43


dividend restrictions

Under the Second Amended Credit Facilities, the

Group was not allowed to declare, make or pay any

dividends while any default is outstanding or would

result from such dividend payment or if the pro forma

leverage ratio exceeded 4.0 multiples as result of

such dividend payment. To the extent its leverage

ratio fell below 4.0 multiples but still exceeded 3.5,

the Group might only pay dividends up to US$300

million, including if any dividends paid during

preceding 12-month period.

Under the Third Supplemental Agreement, if the

leverage ratio exceeds 4.0 multiples, the Group may

only pay dividends up to US$150 million, including

any dividends paid during preceding 12-month

period. To the extent the leverage ratio falls below 4.0

multiples but still exceeds 3.5, the Group may only

pay dividends up to US$300 million, including if any

dividends paid during preceding 12-month period.

As at December 31, 2017, our leverage ratio was

approximately 4.31.

events of default

The Second Amended Credit Facilities contain certain

events of default, and certain insolvency-related

proceedings relating to the Group. Pursuant to the

Second Amended Credit Facilities, a dives

annual report of 2017 · 2018. 3. 22. · we have reinvested in mgm macau with six retail store...

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